The Macro Yield portfolio is comprised mainly of yield-focused instruments to generate income and meet capital preservation objectives. We employ structural, market, and macroeconomic analysis while leveraging the research, analysis, and insights gained from our Special Situations strategies. In addition to fixed income securities, investments may include other yield securities such as preferred and trust preferred shares, and common shares. The strategy seeks a mid-single digit annualized return net of fees.
Many of the Macro Yield strategy’s investments are in stocks that may be mispriced due to corporate actions such as spinoffs, restructurings, mergers, or IPOs.
The strategy may purchase inverse ETFs when our research reveals what we believe are unreasonable growth or earnings expectations. Inverse ETFs may also be utilized in an attempt to protect against macroeconomic and tail risks such as slowing global growth and geopolitical instability, as well as other events that we believe may cause market declines.
We utilize a fundamental value-focused investment approach with a focus on securities with yield. We primarily employ structural, market, and macroeconomic analysis but also leverage the research, analysis, and insights gained from our event-focused strategies.
The firm performs strategic and financial analysis to determine if it believes securities are mispriced. Research and analysis is aimed at gaining insights that contribute to the formation of an investment mosaic, which helps us gain conviction around value, events, and catalysts.
We have developed comprehensive proprietary models to guide our position sizing decisions. Each investment idea is ranked for attractiveness on the basis of proprietary measures versus all current and prospective investment ideas. Fundamental analysis is critical to managing risk, including understanding the impact of specific risks and exposures on positions. We develop an investment thesis that includes a comprehensive valuation analysis, operating leverage, and sensitivities to key drivers. We believe that appropriate position sizing is an important component of managing risk.
We gather and apply insights from discussions with company management, competitors, suppliers, customers, and consultants. Investments are continuously evaluated relative to the original thesis, as well as all investment ideas in the portfolio and under consideration.
We seek a mix of equities (common and preferreds), ADRs, and ETFs that provide yield income. Our target is to have 20-30 core long positions (including ETFs), and when appropriate, 0 to 10 short positions.
Generally, the Macro Yield strategy has a high level of diversification due to the significant use of exchange traded funds that are comprised of multiple underlying securities and low levels of concentration in individual common and preferred stocks.
We may alter portfolio exposures based on the attractiveness of investment opportunities and the opinions of the Portfolio Manager regarding the general investment environment. We may utilize higher cash balances to protect the portfolio against market declines.
If we are fully invested, new positions must have a better volatility adjusted risk / reward ratio and upside and conviction levels than existing positions. If we are less than fully invested, the volatility adjusted risk/reward ratio must exceed our minimum threshold in order for new positions to be created.
We close positions based on the occurrence of a prospective event (positive or negative), valuation levels, and may also close positions based on price momentum or technical analysis.
We seek to minimize the probability that large losses will develop without frequent reassessment by the Investment Manager, and to manage risk through alternative forms of investment where appropriate.
Position level risk is generally managed by:
1. Dynamically monitoring securities prices.
2. Re-evaluating the attractiveness of opportunities and risks as securities prices approach tolerance levels.
3. Soft stop-loss limits: Although we firmly believe that our expertise lies in fundamental security analysis, we believe that the use of soft stop-loss provisions, which we can change based upon market conditions, may help minimize the cost of mistakes.